Public Bill Committee

[Sir Nicholas Winterton  in the Chair ]

Written evidence to be reported to the House

LSB 1 Which?

Nicholas Winterton: I welcome those Members who have arrived so far. It is a lovely day, although coming around Parliament square took rather longer than normal this morning. Whether that was because the lights were out of sync or because of the volume of traffic I am not sure.

Henry Bellingham: Were you on your bicycle?

Nicholas Winterton: No.

Clause 83

Licensing rules

Bridget Prentice: I beg to move Government amendment No. 7, in clause 83, page 48, line 24, leave out paragraph (e).
I hope that we can deal with the amendment reasonably swiftly. It will reverse an amendment that was made in the Lords, which would require licensing authorities to pay particular attention to access to justice when considering alternative business structure licences. I have no quarrel with the spirit of that amendment; we take seriously access to justice, as Baroness Ashton explained in the other place. It has been one of the regulatory objectives since the Bill was drafted.
Clause 82 requires the authority to issue policy statements on how it will consider the regulatory objectives, including access to justice, when carrying out its licensing functions. That will include the consideration of applications for ABS licences. We do not want the reforms in the Bill to make access to justice more difficult. Indeed, I would not have introduced such measures if that were their effect. I am confident that the forms of service provision enabled through part 5 will actually improve access and encourage new methods of service delivery. Providers will have to try harder to reach consumers and to provide for their needs.
The measure will deliver more joined-up provision, because different kinds of professionals will be able to work together on integrated services in a one stop shop setting. It will also stimulate competition, which consumers will welcome, as it should bring prices down. I am confident that licensing authorities will be mindful of the need to improve access to justice and will do whatever is necessary to avoid harmful effects. They will be able to refuse licences if they think that the effect of granting a licence would be damaging, and they will be able to impose conditions on licences. I differ from the Bill as amended on whether access to justice needs to be singled out to ensure that licensing authorities take it into account. I am confident that it does not; clause 28 already ensures that they will take account of the regulatory objectives, which include access to justice.
 I acknowledge that alternative business structures are new and therefore carry new risks. There was argument in the other place over whether the firms that might be likely to go into legal services under part 5 would cherry-pick profitable services and leave solicitors to survive on the less profitable work. The purpose of the amendment that was made in the other place was to require licensing authorities to give sufficient weight to access to justice when considering licensing.
The problem with that provision is that it inevitably puts access to justice ahead of all the other objectives. It does not mention the other objectives, nor does it require licensing authorities to balance access against them, which naturally means that access would be interpreted as carrying greater weight than the other objectives. The licensing authorities would therefore inevitably treat access as more important, if only to protect themselves from legal challenges for not having taken it properly into account. That might not sound too bad, but the problem is that it risks putting the other objectives second.
It may be that an ABS licence will benefit the consumer because of the other objectives. For example, the objective of increasing competition might promote consumers’ interests. Those considerations make it acceptable to make a small reduction in the extent to which access to justice is a nose ahead of everything else. Effectively, the Bill could turn a condition that no decision could ever adversely affect access to justice in any way, no matter how beneficial that might be, into the reality. I do not think that that is what we want.
Another issue that has been brought to my attention is that the measure may be an attempt by some in the legal world to protect their own interests, rather than a consideration of consumers’ interests as paramount.

Simon Hughes: How on earth could that be the case? How can the extra requirement for access to justice in the licensing regime be considered as a measure that gives a defence to lawyers but does not give advantage to consumers?

Bridget Prentice: Inefficient and poor-quality solicitors firms in, say, Lewisham high street, may be protected by the fact that they put access to justice above the other objectives, rather than upping their game to consider all the objectives. Consumer groups have told me that that is one of their fears, and it is why we tabled the amendment. It is important to consumer organisations that access to justice is one of the regulatory objectives, but they feel that it should not be put above the others.

Simon Hughes: The Minister has not answered the question. If the solicitors firm in Lewisham high street provides a good service and good access to justice, paragraph (e) of subsection (5) would not defend its interests any more than it would defend consumers’ interests. A bad firm would not, by definition, provide access to justice because it would not provide a just service for finding just solutions. Please will the Minister think again? Her argument does not stack up. It may have been put to her, but that does not mean that she must buy it.

Bridget Prentice: The hon. Gentleman is right in respect of the discussion on access to justice. Many of us are aware—some of my hon. Friends could no doubt give examples—of situations in which an individual goes to a solicitors firm and thinks that they are getting access to justice because the solicitor takes their case, but they subsequently find that, frankly, the standard of work is pretty appalling. That is not access to justice. The consumer groups say that if we put access to justice in the Bill as in paragraph (e) and therefore give it more weight than the other regulatory objectives, such as competition, we could be allowing firms to continue as they are when they ought to be thinking hard about improving their standards and working with others to learn from best practice.
 Finally, I am not in any way condemning any solicitors firm in Lewisham high street. I used that location as a general example of a place where consumers might have a problem unless the amendment, which I commend to the Committee, is made.

Jonathan Djanogly: We are now discussing clause 83, which concerns the ABS licensing rules for the licensing authority. I am afraid that this will be another set-piece debate from the other place, but it will deal with the important issue of the proposed reversal of amendments made in the other place by my noble Friends, the Liberal Democrats and Cross-Bench peers to ensure that licensing rules contain provisions requiring the consideration of the impact on access to justice.
I shall start by noting the words on Third Reading in the other place of my noble Friend Lord Kingsland. Outlining the importance of his amendment, which the Government are now seeking to reverse, he said:
“First, all the amendment obliges the licensing authority to do is to conduct a thorough investigation into the access to justice implications of the proposal. The obligation is for the licensor to put itself in the picture as thoroughly as possible before testing the proposal against all eight objectives. Within the scope of the amendment, the licensor is perfectly entitled to investigate in as much detail as it thinks appropriate any of the other seven objectives. Secondly...there is, in my submission, nothing wrong or unprecedented in Governments requiring decision-makers to give particular or significant weight to a relevant consideration, and, in this case, there is a powerful...reason for doing so.”—[Official Report, House of Lords, 15 May 2007; Vol. 692, c. 136.]
 As the Minister indicated, on Report in the Lords, a Government amendment was accepted requiring licensing authorities for alternative business structures to issue policy statements with the approval of the board, setting out how they would comply with the duty to promote the regulatory objectives when exercising their functions. Baroness Ashton said that rather than impose a duty specific to access to justice the Government had sought to consider the interaction between access to justice and the other regulatory objectives. However, we do not agree that the Lords Government amendment deals with the issue, as it fails to direct licensing authorities’ attention to the particular risks posed to access to justice by alternative business structures.
Let us consider the view of others who have reviewed the Bill. Lord Woolf expressed his concern in a report earlier this year, stating:
“There is no doubt that large businesses could provide legal services in a novel and interesting way. But that could—unintentionally, perhaps—have a devastating effect on those who have traditionally provided services in rural areas in particular. Great care has to be exercised to see that damage does not occur.”
The Master of the Rolls said that it was
“very difficult to see how this suggestion is going to improve access to justice for those who cannot really afford it because...anybody who is going to invest money into it is going to be looking for a return, quite unsurprisingly.”
 The Minister referred to so-called cherry picking and implied that the Bill will deal with it adequately without the Lords amendment that she wishes to reverse. The Law Society was worried about that, stating:
“New entrants into the market may bring about some benefits. However, there is a risk that there may be long-term structural effects that destroy service provision and the fabric of small communities. Put bluntly, new entrants might cherry pick more profitable and less complex areas of work, driving down the profitability of established local firms who offer a full range of services at the heart of their communities. If that happened, where would consumers go for advice on complex matters?
The Law Society's conclusion is that whilst the regulatory issues concerning new service providers can be dealt with...there are very serious risks to access to justice from the uncontrolled admission of new entrants. Existing practitioners report that in many areas, a number of existing firms serving small localities would be in jeopardy if large institutions entered the market for legal services.”
Richard Miller, the director of the Legal Aid Practitioners Group, said:
“As a representative body for legal aid firms and agencies, we are particularly concerned about the likely impact on the current range of services provided by high street solicitors. Commercial providers will be attracted by the areas that can be commoditised, computerised and provide a reliable margin of profit. These services often subsidise legal aid work, and without them high street firms may not be financially viable. ABSs will cherry-pick only the profitable work, such as conveyancing, wills and telephone helplines.”
The Joint Committee on the Draft Legal Services Bill under the chairmanship of Lord Hunt also highlighted the issue, stating that it was
“persuaded by some of the evidence suggesting that the reforms may reduce geographical availability. We consider that ABSs may reduce the number of access points for legal services and we see this as a potential problem. There is clearly an issue here and the only conclusion we are able to draw is that no-one can be sure how it will work out. We recognise that there may be a trade-off between the quality and accessibility of advice—for example a small, high-street solicitor in a rural area may not be able to provide the specialist advice a client requires. We recommend that the Government amends the draft Bill to ensure that the impact of ABSs on access to justice, particularly in rural areas, informs the decision-making process for licensing an ABS firm.”
The Joint Committee recommended that the Government should amend the draft Bill to ensure that the impact of ABSs on access to justice, particularly in rural areas, would inform the decision-making process for licensing an ABS firm. Accordingly, it is now provided in the Bill that licensing authorities would be required to consider the likely impact of a proposed application on access to justice when considering an application. A licensing authority would be either an approved regulator, which is designated as such, or the Legal Services Board.
The Conservative party strongly supports retaining this provision, not least because there are important considerations in terms of geographic and sectoral legal work which we will need to think about carefully. Lord Kingsland explained the danger that might arise on Second Reading:
“You might get a very powerful ABS deciding to try to drive a legal firm out of a particular market by predatory pricing; by subsidising from profitable legal activities in the other part of a firm a particular section of a firm that would sell its legal services below cost to gain a competitive advantage and probably drive several of its competitors out of the market.”—[Official Report, House of Lords, 6 December 2006; Vol. 687, c. 1206.]
 The Government need to rethink. The problems mentioned will need very careful handling by the LSB if we are not to have a range of competition problems, which so far seem to have been unforeseen. We are seriously concerned that without the access to justice requirement, the Government may have made a serious misjudgment. I remind the Minister that this would not create access to justice as the overarching objective, which was the fear expressed by the Minister in her earlier remarks and by Baroness Ashton in the other place.

Adrian Bailey: I am listening to the hon. Gentleman’s argument. Is it not the case that if an alternative business structure deliberately tried to undercut an alternative legal service provider, such activities would be governed by Office of Fair Trading regulations, so it would be prevented from doing so?

Jonathan Djanogly: The Minister was arguing that the Bill, without the provision, would be adequate. We argue that it is such an important point that it needs to be put in the Bill itself.

Adrian Bailey: With the greatest respect, the hon. Gentleman has not replied to my question. There is a regulatory framework that prevents the activity that he says would take place and so needs to be regulated by the Bill.

Jonathan Djanogly: The direct answer to the question is to look at what has happened. The OFT produced a report on competition in the legal market in 2001. Here we are, half way through 2007, debating its conclusions. We want a system that is rather more adaptable than that. Indeed, the Bill essentially provides that, but access to justice should be included in the Bill as an important point for consideration.
 The Minister mentioned the view of the consumer organisations but we believe that it is a short-term point of view. With no effective control on cherry-picking, competition and choice could be reduced by the growth of so-called advice deserts across the country. The provision is intended to ensure that the licensing authorities consider the possible effect on access to justice and give the issue full weight when determining applications. On that basis, I shall recommend that my hon. Friends vote against the amendment.

John Mann: We have heard quite a bit about access to justice in rural areas. Conveniently, of all the members of the Committee I probably represent the largest rural area with 550 square miles. My experience of access to justice in a highly rural area is of some relevance. My question is: where is the factual basis? We hear many assertions. I have carried out my own quantified survey—I have a small sample of it with me— asking people in a rural area about access to justice. My finding is that they are not very happy with the current situation; they feel that they do not have proper access to justice. However, they are looking at matters from a different angle. They mean that they are not happy with the service provided by existing solicitors. It seems, therefore, that access to justice needs to be properly defined. I am not against small businesses—quite the contrary; I once owned a family business—and I would support the small business against the big enterprise any day. However, access to justice needs to be defined in the context of how people get to the service and what is provided.
 The problem with this debate and with the background to debates in another place and on the Joint Committee is that people are looking at the wrong paradigm. They are looking at the people who currently use such services, rather than those in the expanded market that should exist. I offer any decent firm of solicitors, small or large, that wishes to get into new areas a plethora of possibilities for work with people who have not accessed justice before. There are many paths—let me give some examples.
Hundreds of people might well be inspired to take action in relation to the recent health and safety abuses of graveyards and memorials in my area and others, at a cost to them of some £350 a head. They clearly have a legal case. Tens of thousands of people have never challenged the abuse of the car parking system by major operators. They, too, clearly have a legal basis for a challenge, but have never found anybody willing to take on the work, not least because those separate individuals have not considered going to the legal profession for advice in support of their consumer rights.
In their brave attempts to expand the concept of justice, the Opposition are considering the old paradigm—the system as it was—and missing the key point that the market should expand. A lot of demand is not being properly met, and that is what an expanded legal profession should be looking at. It should root out those who have never dared to presume that they can use the services of the legal profession. As my survey proves, that means the vast majority of people in a big rural area like mine.

Simon Hughes: It is true that my constituency does not cover 550 square miles. In fact, it is about one hundredth of that size—perhaps a bit more. However, the hon. Gentleman makes a point about the need for access to justice that does not contradict those who support the amendment that the Minister is now trying to undo. Let me start where he ended. Of course, in communities such as his, as in all rural areas in Britain, there is a need to ensure that there is proper access to services that have the confidence of the community. That might not be provided in his area—he knows his towns, small towns and large villages better than anybody else in the room—but that is not an argument against retaining the provision in the Bill.
The Minister started by referring to the fact that the Government made some concessions on Report about the duties of licensing authorities. Indeed they did. The matter was carefully considered by colleagues in the House of Lords, and when they returned to it on Third Reading, and there was a significant majority in favour of amending the Bill to read as it does now. The vote was 213 to 145, and the majority comprised a coalition, as the hon. Member for Huntingdon said. All of them thought that it was important that we include a reminder of the importance of access to justice not in the statute that governs the LSB, but in the documents that govern each of the authorities addressing such issues.
It could be argued—I thought that the Minister might argue this—that if the Lords were going to move in that direction, they should have gone further in clause 83(5)(e), which the Minister is trying to remove. Logically, they should have included objective 1, which relates to protecting and promoting the public interest, as well as objective 3, which relates to “access to justice”. I could understand that argument because the public interest must be uppermost.
Let me turn, however, to the argument that the hon. Member for Huntingdon and I are making, which was strongly made outside and which is absolutely not in the interests of existing lawyers who do the existing work—that is, the status quo. The clause is about the licensing rules that will be written by the licensing authorities that the Bill sets up. Those rules will set out the qualifications that people will need to be able to practise, which is of course appropriate. Subsection (5)(b) sets out
“arrangements...conduct rules, discipline rules and practice rules”
and what happens where there is an internal difficulty. There are also provisions dealing with indemnification, so that people have a chance to get compensation if things go wrong.
At this stage in the process, however, there must also be a pause for reflection about whether what is being done increases rather than decreases people’s ability to access services. By that, I mean good services, not inadequate ones or ones that do not do the job that people want them to, as clearly happened to people in Nottinghamshire and elsewhere in the country. We all know about the issue of complaints, which we shall discuss later in the Bill, and there has been a history of unsatisfactory practice and remedies in many cases. That is why I intervened on the Minister.
I cannot understand the argument that says that considering the access to justice criterion at this stage in the process would not benefit the people walking up and down Lewisham high street, Macclesfield high street—I do not know whether that is what the main street in Macclesfield is called—or Borough high street in my constituency. It must be in the interests of such people for an assessment to be carried out when a big insurance company or a college of occupational therapists, for example, is given a licence to do a piece of work or offer a service. Such a college might see a potential benefit to having a legal service and might think it convenient to be able to offer legal advice to people who come in for back pain relief following an industrial injury. One could contemplate all sorts of organisations taking up the opportunity offered by the alternative business structure model if it were available. If they do, the question then is whether that will advance access to justice. I agree that the other relevant consideration would be protecting and promoting the public interest, which is one of the objectives, and that is the other side of access to justice.
I want to make two other points now, in addition to underlining the strong point made by the pre-legislative Committee in paragraph 3.24 of its report on the draft Bill, to which the hon. Member for Huntingdon referred. The Committee clearly recommended in the terms that the hon. Gentleman set out that the Bill should be amended. Elsewhere in its recommendations, it said that the Government or Parliament should think about things, but in this case it recommended
“that the Government amends the draft Bill to ensure that the impact of”
alternative business structures
“on access to justice...informs the decision-making process for licensing”.
It dealt specifically with rural issues and expressed concern about them.
The issue is important, and I put it to the Minister to keep it before us, because it is one of those on which there will be firmness on the Opposition Benches and elsewhere for a considerable time to come—it will not go away. As the Minister knows, the legal aid service is also being reorganised in her Department, as the hon. Gentleman mentioned. That is causing considerable anxiety and disquiet. That is exactly where the linkage is between those who might provide the service and the financial arrangements allowing people to gain access to the service. That, self-evidently, is because there are two parts to gaining access to justice. The first is to know where the front door is; the second is whether one has the resources to take the advised action, or, indeed, the action that one is entitled to take.
 There is serious concern, particularly in rural areas but not only there. The hon. Member for North-West Norfolk knows—he and I have shared platforms—that many rational, non-militant people who do that sort of work in counties such as Norfolk and cities such as London are extremely exercised that the reforms will make it much more difficult for the poor, the disadvantaged, the mentally ill, those with learning difficulties, those who do not have English as a first language, and those who simply are not experienced in dealing with the law, to be able to gain access to the system.

Jonathan Djanogly: The hon. Gentleman makes an important point. He will appreciate that, under the Carter proposals, the Government propose a significant reduction in the number of law firms. The extent of that reduction is the subject of debate, but no one is saying that it will not happen. Does the hon. Gentleman not agree that adding to that reduction the cherry-picking proposals for access to justice could create a crunch that no one has foreseen?

Simon Hughes: That leads me conveniently on to the link with which I want to finish.
It is clear from the way in which the Carter review was set up, and from the Government’s response, that what is effectively being set up is a new franchising arrangement. I have attended meetings with the Under-Secretary of State for Justice, the hon. and learned Member for Redcar (Vera Baird), who leads on such matters, and I have heard her say directly, face to face, that she expects the closure of certain places so that other legal outlets can be enlarged, and that it is no good firms being able to carry on with the specialist character of their work, looking after certain types of cases, without taking on a raft of other services. She made that point absolutely clear.
The amendment would prevent consideration of that matter not in the generality but in the particular. Subsection (5) states:
“Licensing rules of a licensing authority must contain ...appropriate provision requiring the licensing authority to consider the likely impact of a proposed application on access to justice when determining the application”.
At the moment that the case comes before the court the licensing authority must consider access to justice.
 It is rather like the questions that come up in all our constituencies when planning applications are decided. The clause makes a parallel provision, saying that when individual applications come up, those who decide them are duty bound to think about access to justice. Officers must advise them, as it were, that the authority must consider the issue and decide whether it passes the test. It is not sufficient to say that it is one of the regulatory objectives or, further away, that it is to be found in guidance or is the equivalent of the law of the land. It means that, on every individual application, the licensing authority has to ask the question. Depending on decisions made yesterday, last week or last month—depending on what has happened in Lewisham high street, Borough high street, or Macclesfield high street—the answer could be different.
I understand the arguments put by the Minister, and by Ministers in the other place, but none of them are at all persuasive. The Government lose nothing by keeping the Bill as it is. Whether or not the Minister concedes the point today, I hope that she will reflect on the matter so as to ensure that we do not have to have a long battle over the issue. She may concede nothing but still give some encouragement to legal aid practitioners by keeping the provision in the Bill. That would also give some encouragement to those who are worried about the Government’s undermining of services to the less advantaged. I hope, in the end, that she will understand that the Lords was very firm on the matter, and that Opposition Members, too, will be very firm.

Adrian Bailey: I had not intended to speak on this matter, but having heard hon. Members’ remarks, I feel that I need to do so. First, however, I draw colleagues’ attention to the declaration that I made on Second Reading. I am a Labour and Co-operative Member of Parliament. The Co-op, Tesco and other retail organisations have been quoted at length in some debates as potential beneficiaries of the change. I am told that I do not have to declare that interest, but I feel it appropriate to do so.
 I must make a philosophical point. I am astounded to hear Opposition Members, who belong to parties that historically are wedded to the philosophy of free market competition, defending one of the most long-standing and outrageous closed shops that can possibly be imagined, and praying in aid of that defence a number of assumptions that do not stand up to the test. The first assumption rests on the question of the nature of the barriers to access to justice. Implicit in the arguments presented by Opposition Members is the idea that law firms are a bit like legal supermarkets or community stores—they exist in all communities and are used regularly, if not daily, by a large proportion of the public, and anything done to undermine them will deal a devastating blow to services in the area. I do not think that that is the case. It is likely that law firms in sparsely populated rural areas, for example, already specialise in a particular aspect of law. The chances of finding a law firm covering a range of services effectively and expertly are, quite frankly, slim. What are the real barriers to people using law firms? Is geographical proximity a factor?

Bob Neill: I am listening to the hon. Gentleman with interest, but I urge him, if he has not done so, to read the evidence taken by the Constitutional Affairs Committee on Carter and access to justice. He will find that concerns about a possible dearth of access to justice and the risk of legal aid deserts were expressed not just by lawyers—not just by the closed shop, so to speak—but by the voluntary sector, citizens advice bureaux and a raft of other organisations. It is not a lawyers’ thing at all.

Adrian Bailey: I have heard the argument about legal deserts for four or five years, and to a certain extent, from Opposition Members’ point of view, it is a self-defeating one. If the possibility exists as a result of the changes arising from the Carter proposals, it is important to create a new legal service provision that will operate at lower cost so that more companies can provide services profitably.
 I was about to ask what the real barriers to access to justice are. Is it a geographical issue? When a person wants a particular legal service, I do not believe that the geographical proximity of the legal service provider is uppermost in their mind when they make their choice. The last time that I needed conveyancing on my house, I went on the internet. In fact, I never had a face-to-face meeting with the people who conducted it, and that is an increasing trend. If we polled people about the reasons why they do not use solicitors, geographical proximity would be low on their list of criteria. The main criterion would be perceived cost. There is a belief abroad that going to a solicitor is a very expensive process beyond the purse of an ordinary person, and that people are enmeshed in a process over which they have no control and that the ultimate cost can be formidable. There is a belief, too that if things go wrong, there are very few means of redress. There are provisions in the Bill to deal with that, so one could say that in totality it deals with the fundamental obstacles to access to justice.
 In addition, arising from the perceived exclusivity of the legal profession, there is a profound psychological barrier for a great majority of people who want to use the existing structure of legal services. Alternative business structures, which in most cases will be far more firmly embedded in urban and rural communities than the current legal services, will provide a range of services to a far greater number of people without generating historical antipathy or concern. Such structures will be perceived as far more consumer friendly.
Finally, there is a regulatory regime designed to stop undercutting, and I am sure that if that practice took place, lawyers, being lawyers, would quite rightly be adept at exploiting that regime. The argument that alternative business providers will just cherry-pick the most profitable parts of legal services and neglect others is based on perception. The fact is that a range of alternative business providers might provide services that historically have not been well provided for by solicitors—that is one of the benefits of the Bill.
The Bill will lead to an opening of the market and, as always, adjustments will have to be made. I appreciate the fact that, for the legal profession, some adjustments might be quite difficult and painful, but if they benefit consumers, or change consumers’ perception of the legal services industry and make more people ready to use legal services, that will benefit not only alternative business providers but the traditional legal profession.

David Burrowes: I apologise for not being present at the beginning of the debate, Sir Nicholas. The debate is about access, and accessing Westminster from Southgate this morning was rather difficult due to local transport problems. That shows clearly that geographical location is relevant when considering access.

Henry Bellingham: On your bike?

David Burrowes: Sadly not. I use a bike only in my constituency; it is too dangerous in Westminster.
The hon. Member for Bassetlaw asked where the evidence was of potential problems of access to justice. As there are a number of lawyers present, I put myself forward as an exhibit. Indeed, I invite the hon. Gentleman and the hon. Member for West Bromwich, West to come and see the situation in Enfield, where there are legal aid advice deserts. I am a legal aid lawyer and therefore can talk only about experience of such work, not about conveyancing markets and the like.

Adrian Bailey: The hon. Gentleman is making my case for me. If, as he says, there are legal aid deserts, that strengthens the argument for providing alternative business structures that might fill those deserts.

David Burrowes: If the hon. Gentleman is patient, he will hear the point that I am making. I hope that he will take up my invitation to visit Enfield. Rather than considering conveyancing, which is a world away from welfare law, we should consider education. If a problem arose as a result of a family member being excluded from school, or suffering bullying, harassment or discrimination, it would not be possible to find a lawyer to deal with education law. That would be a serious problem; despite searching high and low for the access to justice that we all want, people would not be able to find it. They would be told, if they found someone who could give them some direction, that they would have to go out of town to Essex, to find an advice centre where they could be given advice.
Such an education law desert exists now. It is possible to get advice out of town, away from any medium-sized firm that might want to develop in the relevant area. However, people would not do it. In Enfield many of my constituents with such concerns do not go anywhere for help; they do not receive justice. They often require the help to be in the right geographical location. That does not apply to everyone, but many people are concerned that advice should be available in the high street of their rural community. It cannot therefore be left just to the market to develop the provision or not, as suggested in evidence.
Evidence was given to the Joint Committee by Jonathan Lindley of the Legal Services Commission that for social justice advice it is not necessary for a solicitor to be provided all the time and that advice need not be given face to face. He envisaged that if a large supermarket were to come into the market, the Legal Services Commission would contract with it to provide the range of services for individuals that was necessary in any location. That might be the case in some circumstances, but it might not in others. The point of the clause that was quite properly introduced by the Lords was to make it possible to take account of issues of access to justice. The hon. Members who support the amendment want to exclude that provision from the Bill. That is a matter of great concern.

Adrian Bailey: I am rather puzzled by the hon. Gentleman’s argument, because by his own admission there are effectively deserts, in relation to a range of legal services, in the areas that he is concerned about. It seems logical therefore to propose alternative business structures to provide legal services in those deserts. He does not seem to have a solution.

David Burrowes: The Minister told us in the Joint Committee that the jury is out; there is a risk. The not-very-convincing case for not including the provision in question was:
“I think there is possibly the chance that it is quite likely that they”—
that is, rural consumers—
“will have a better chance of getting more services in the rural area”.
There is a risk in relation to access to justice. The amendment does not take proper account of that, but it is necessary to do so. I invite the Minister to consider carefully the need to give consideration to access to justice.

Bob Neill: I do not want to prolong matters—I just want to make a very short point. Please do not let us think that issues of access to justice affect only rural areas. In a suburban part of London like my constituency, a single parent with a family law issue, living, for example, on the Mottingham estate, where there is significant deprivation, will have enormous trouble in getting access, as things are now, to a solicitor who will handle an application for an ouster injunction against a violent partner or former partner.
 To make light of the impact of the current legal aid changes in relation to the present proposal is to miss the point and the compelling evidence given from all sides to the Constitutional Affairs Committee. I very much regret—and I feel strongly about this—that the Government are so dogmatic on the issue, and needlessly so, in the light of all the evidence, in particular from legal aid practitioners. It is wrong that the debate should always be structured on the basis that solicitors do conveyancing and get money for old rope. That is not the experience of my constituents, who often depend on legal aid. I should have thought that that would apply to Labour Members’ constituents as well.

Simon Hughes: I just want to make two short points in response to points from the hon. Member for West Bromwich, West and the Minister. There are many legal firms in small towns that, despite principally dealing with one type of matter, either have another branch elsewhere that deals with other matters, and to which there is local access, or are in an arrangement with other firms doing other business. So the local access issues do not mean that people are limited to the service that is provided in that building by the people working there. Often, that building is the doorway to a much better service.
I would like to ask the Minister a question. She said that she had been lobbied by consumer organisations. I think I am right in saying that the National Consumer Council and the National Consumer Federation support the amendment that was made in the Lords. I would be grateful if she would just confirm that she also understands that to be the case.

Bridget Prentice: We have listened to the concerns that have been expressed about ABS licensing and the new risks that may exist alongside the potential benefits. That is why we tabled those two amendments in the other place. The first amendment was to clause 82, saying that all licensing authorities must issue policy statements about how they will comply with all the regulatory objectives, including access to justice. Those policy statements must be approved by the board, and the licensing authorities will be monitored to see how they adhere to them.
 Secondly, in clause 110 there is now a requirement on the board itself, to report annually on the way that the activities of licensing authorities and licensing bodies have affected the regulatory objectives. That requirement will ensure that the development of ABS and its effects on legal service provision are kept under permanent review.
The advantage of our amendments is that they require all the regulatory objectives to be taken into account and to be monitored at all times. They do not single out any one objective for particular attention.
I would like to look at clause 82 briefly. Having to make policy statements will mean that the licensing authorities and licensing bodies must say how they will consider access to justice along with the other regulatory objectives when they make their licensing decisions. Those policy statements will have to deal with access to justice properly in order to gain the approval of the board, which will then inform the activity of the licensing authority through rules and individual decisions; that activity will, in turn, be overseen by the board, to ensure that it gives effect to the policy statements.
I was asked about cherry-picking and how we prevent large commercial operations from damaging access to justice. First, clause 28 says that the licensing authorities have a duty to promote the regulatory objectives, including access to justice, and clause 82 reinforces that by ensuring that the licensing authorities must take the extra step of formulating policies to fulfil that duty. Furthermore, the details of the policy statements that must be made might be shaped by the type of service that the authority intends to license, as well as the potential providers, the consumers and the geographical area that might be affected. So the licensing authority will be able to take into account the effects that that particular provider might cause.
 That is why the cherry-picking argument does not hold up. Several hon. Members made that argument, in particular the hon. Member for Huntingdon. The argument assumes, for example, that some types of work are always profitable and must always cross-subsidise other types of work that are always unprofitable. There is no proof of that. On the contrary, the legal aid experience is that it is possible for a company to be profitable by specialising in certain types of work that are sometimes assumed to be unprofitable.

Jonathan Djanogly: Has the Minister received any evidence, or is she seriously suggesting, that, say, Tesco or another large provider would be likely to offer criminal legal services, matrimonial legal services, or mental health legal services?

Bridget Prentice: May I ask the hon. Gentleman to repeat that? I was handed a note during his question.

Jonathan Djanogly: The Minister seemed to be making the point that it is not necessarily the case that firms will have loss leaders, and that an activity that is now seen to be unprofitable could, in the future, become profitable. I am putting it to her that there is no evidence to suggest that certain areas of law—I mentioned a few examples before—will be areas that any large provider would want to offer.

Bridget Prentice: I do not think that there is any evidence to the contrary; that is the point. There are people who are saying that certain areas of the law are profitable and that they are used to cross-subsidise those areas that are unprofitable, as if that is set in stone. I am not convinced of that, and I have seen no evidence to convince me that that is the case. On the contrary, with more opportunity to access commercial expertise on capital, it is more than likely that an ABS will act as a driver for new means of delivering services, either through the law firms themselves taking advantage of the reforms, or through new providers to the market. We should not assume that the way that traditional law firms provide services is the only way to do so or that consumers do not want different types of services from different types of providers.
My hon. Friend the Member for West Bromwich, West made a point about geography and where people access services, which made me think about the number of my constituents who come into the advice surgery with immigration cases. They use law firms from all over London, not just those based in Lewisham. Despite the problems that people may have commuting from Enfield, people do go across London to find the service that is appropriate for them.
The hon. Member for North Southwark and Bermondsey asked about the NCC and the National Consumer Federation. The NCC felt that the Lords amendment was appropriate, but on the other hand, the National Consumer Federation thought that the Bill provided safeguards to protect consumers and was happy with it as it stood. Which? advocates that the Lords amendment should be overturned.
It has been an interesting debate, but I have not been convinced by the Opposition’s arguments. We should not be in the business of protectionism; we should be in the business of access to justice and upholding the rule of law and all other regulatory objectives. With the amendments that we have made in the other place, the Bill gives us the right balance for that to happen. The risk of leaving clause 83 as it stands is too great. All regulatory objectives should be considered at all stages, and access to justice is integral to that. On that basis, I commend the amendment to the Committee.

Question put, That the amendment be made:—

The Committee divided: Ayes 9, Noes 6.

Question accordingly agreed to.

Clause 83, as amended, ordered to stand part of the Bill.

Schedule 11

Licensing rules

Jonathan Djanogly: I beg to move amendment No. 211, in schedule 11, page 183, line 8, at end insert—
‘( ) Licensing rules may provide for fees to cover the whole cost to the licensing authority of dealing with the application, whether the application is granted or not.’.
The amendment was suggested by the Law Society. It is required to make it clear that licensing rules can put the whole cost of dealing with an application on the individual applicant, rather than leaving part to be borne by the licensing authority itself and thereby by other firms regulated by that authority.
 It is an important general principle of the bill that the costs of regulation should, as far as possible, be borne by those whose activities give rise to the cost, rather than by the regulated sector as a whole. That is particularly important in respect of ABSs, where some applications could give rise to complex issues. It would be quite unsatisfactory for there to be a single flat fee applied to all applications, whether from a comparatively small applicant filling a gap in legal services or from a megastore supermarket seeking to set up the sort of service that might give rise to particular concerns about the possible impact on access to justice. We have just debated that.
If a single fee were set to meet all the costs of dealing with ABS applications, the result could be grossly unfair to the small applicant. However, a single fee at the level appropriate for the small applicant would involve an unacceptable cross-subsidy from the rest of the regulated sector—in this case, non-ABS firms—towards the cost of ABS regulation. The solution is to enable different fees to be fixed for different categories of applicants. That is dealt with to some extent in the provisions concerning not-for-profit bodies in clause 106, but it is also important to be able to vary fees, even among commercial applicants for ABS licences. There is no reason why an applicant whose application gives rise to no significant concerns about access to justice should pay the same fee as one that does.
 If licensing authorities were unable to match the fee to the cost of dealing with the application, they might be inhibited from investigating applications as thoroughly as they should, particularly where access to justice considerations arise. The amendment is designed to stop that problem and ensure that the costs of dealing with applications can be placed on the applicants concerned.

Simon Hughes: We have subscribed to the amendment, which is entirely reasonable, and if agreed to it would not mean a mandatory requirement. It does not say, “licensing rules must provide”, it says “may”. It does not oblige the outcome advanced by the hon. Member for Huntingdon but gives the clear indication that people should pay for the application that they are making, which must be the right process. If people are making a much bigger application, the processing and consideration will take longer, more time will be needed and the fees will be bigger. The amendment does all the things that one would expect. I hope that the consumerists on the other side of the room will join those on this side, thinking that this is a reasonable way forward.

Bridget Prentice: It is a very tempting thought that consumerists across the divide should get together. I do not know whether this is meant to be just a probing amendment, but I am rather surprised by it, because this matter was fully dealt with in the other place. I thought that the position was understood and that it had been accepted that the Bill—particularly schedule 11—gives the flexibility that the amendment is designed to achieve.
 It is reasonable to expect a licensing authority to charge for the full cost of processing applications, whether or not the application is successful. As the hon. Member for North Southwark and Bermondsey said, some applications will generate a great deal more work than others, and that will depend on the nature of the body making the application. The megastore mentioned by the hon. Member for Huntingdon that wants to operate in various locations will clearly need more consideration than a single firm operating in one place.
The amendment also mentions the fee being payable whether or not the application succeeds. It is important that the fee is payable regardless of the success of the application, otherwise there may be a temptation on the authority to grant an application where it really ought not do so. Non-refundable application fees are pretty common in many walks of life and I see no reason why it should be any different here.
If the full costs were not charged in each case, one firm could end up subsidising another. That could create some problems. For example, it might make the authority unattractive to firms if their fees were disproportionately high, and in that event they might seek licences from another authority. There is nothing particularly wrong with that in principle—the reforms are in part about regulatory choice—but it might well have a knock-on effect on the authority itself if there were fewer applicants, each of whom would effectively be paying a discounted rate. The licensing authority could lose money as a result, and I am not sure that that is what we want.
The Bill already addresses the issues that the hon. Gentlemen have raised. It gives flexibility to the licensing authorities in how fees are set. The fee levels and their effects on legal services mark-up will obviously be monitored by the board. Fee levels form part of the licensing rules, which for example could set individual fees based on the amount of work that individual applications were estimated to need. All those would have to be acceptable to the board before it would put forward a regulator for designation as a licensing authority. If the board is concerned about the effects on smaller firms or on competition, it can require changes or decline to recommend designation.
Given that what he is seeking is already achieved by schedule 11 paragraph (1) and by a number of other safeguards and flexible provisions in the Bill, I ask the hon. Member for Huntingdon to withdraw the amendment.

Jonathan Djanogly: The Minister seems to have created a new battle cry for international socialism: “Consumerists of the world, unite!” However, I appreciate her thoughtful response and I shall go away and think about it. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nicholas Winterton: I ask Committee members to bear with me at this stage, because I have quite a lot of work to do in putting a number of matters to the Committee. With the Committee’s leave, I propose putting the questions on Government amendments Nos. 134 to 137 together.

Jonathan Djanogly: So we are not including amendment No. 138.

Nicholas Winterton: I was hoping that hon. Members on both sides would be listening carefully to what I said. I propose, with the Committee’s leave, to put the questions on Government amendments Nos. 134 to 137 together.

Amendments made: No. 134, in schedule 11, page 189, line 43, leave out
‘an interest in shares in the body’
and insert
‘a shareholding in the licensed body, or a parent undertaking of the licensed body,’.
No. 135, in schedule 11, page 189, line 44, at end insert—
‘( ) if the relevant licensing rules make the provision mentioned in paragraph 38(1)(aa) of that Schedule, a non-authorised person has under those rules an entitlement to exercise, or control the exercise of, voting rights in the licensed body or a parent undertaking of the licensed body which exceeds the voting limit,’.
No. 136, in schedule 11, page 190, line 1, leave out
‘in which non-authorised persons have an interest’
and insert
‘or a parent undertaking of the licensed body held by non-authorised persons’.
No. 137, in schedule 11, page 190, line 2, at end insert—
‘( ) if the relevant licensing rules make the provision mentioned in paragraph 38(1)(c) of that Schedule, the total proportion of voting rights in the licensed body or a parent undertaking of the licensed body which non-authorised persons are entitled to exercise, or control the exercise of, exceeds the limit specified in the rules.’.—[Bridget Prentice.]

Schedule 11, as amended, agreed to.

Clause 84 ordered to stand part of the Bill.

Schedule 12

Entitlement to make an application for a licence to the Board

Nicholas Winterton: I propose to put the questions on Government amendments Nos. 138 to 143 together.

Jonathan Djanogly: I request that amendment No. 138 be taken alone.

Amendment proposed: No. 138, in schedule 12, page 191, line 24, leave out ‘a’ and insert ‘an independent’.—[Bridget Prentice.]

The Committee divided: Ayes 9, Noes 4.

Question accordingly agreed to.

Amendments made: No. 139, in schedule 12, page 193, line 24, leave out ‘in shares’.
No. 140, in schedule 12, page 193, line 26, leave out ‘in shares’.
No. 141, in schedule 12, page 193, line 29, leave out ‘in shares’.
No. 142, in schedule 12, page 193, line 31, leave out ‘in shares’.
No. 143, in schedule 12, page 193, line 32, at end insert—
‘( ) the kinds of non-authorised persons who have an indirect interest in the licensable body.’.—[Bridget Prentice.]

Schedule 12, as amended, agreed to.

Clause 85

Terms of licence

Amendment made: No. 113, in clause 85, page 49, line 39, leave out ‘persons having an interest in shares,’ and insert
‘non-authorised persons having an interest or an indirect interest,’.—[Bridget Prentice.]

Clause 85, as amended, ordered to stand part of the Bill.

Clauses 86 to 89 ordered to stand part of the Bill.

Schedule 13

Ownership of licensed bodies

Amendments made: No. 144, in schedule 13, page 194, line 25, leave out ‘has an interest in’ and insert ‘holds’.
No. 145, in schedule 13, page 194, line 27, leave out ‘interest in shares’ and insert ‘shareholding’.
No. 146, in schedule 13, page 194, line 28, leave out ‘has an interest in’ and insert ‘holds’.
No. 147, in schedule 13, page 194, line 31, leave out ‘interest in shares’ and insert ‘shareholding’.
No. 148, in schedule 13, page 194, line 32, leave out paragraph (e) and insert—
‘( ) is entitled to exercise, or control the exercise of, voting power in B which, if it consists of voting rights, constitutes at least 10% of the voting rights in B,’.
No. 149, in schedule 13, page 194, line 35, leave out ‘voting power in B’ and insert
‘entitlement to exercise, or control the exercise of, voting rights in B’.
No. 150, in schedule 13, page 194, line 36, leave out paragraph (g) and insert—
‘( ) is entitled to exercise, or control the exercise of, voting power in P which, if it consists of voting rights, constitutes at least 10% of the voting rights in P,’.
No. 151, in schedule 13, page 194, line 39, leave out ‘voting power in P’ and insert
‘entitlement to exercise, or control the exercise of, voting rights in P’.
No. 152, in schedule 13, page 195, line 15, leave out ‘has an interest in’ and insert ‘holds’.
No. 153, in schedule 13, page 195, line 16, leave out ‘has an interest in’ and insert ‘holds’.
No. 154, in schedule 13, page 195, line 19, leave out ‘power’ and insert ‘rights’.
No. 155, in schedule 13, page 195, line 21, leave out ‘power’ and insert ‘rights’.
No. 156, in schedule 13, page 196, line 1, leave out ‘an interest in the shares of’ and insert ‘a shareholding in’.
No. 157, in schedule 13, page 196, line 20, after ‘V’, insert
‘(whether or not they are interests within the meaning of section 72(2A))’.—[Bridget Prentice.]

Jonathan Djanogly: I beg to move amendment No. 212, in schedule 13, page 197, line 11, at end insert
‘Licensing rules must provide that, in determining whether the requirements of sub-paragraph 1 are met, the burden of proof rests on the person who wishes to hold the restricted interest.’.
The amendment is designed to make it clear that the onus of demonstrating fitness to own rests on the applicant, rather than it being for the licensing authority to demonstrate that a person was not fit and proper before it could withhold approval. The effectiveness of fitness-to-own provisions is a crucial element of the public protections that need to be in place before external ownership of ABS firms can safely be permitted. It is essential to avoid the spectre of law firms being owned by criminal elements.
The Bill already allows licensing authorities specifically to consider whether or not those who hold more than a small interest in a prospective ABS firm are fit and proper persons. The intention appears to be that it should be for the applicant to demonstrate fitness to own, rather than the applicant being entitled to be approved unless the licensing authority can demonstrate that they are not fit to own. The intention of the provision in paragraph 14 under which licensing authorities may require non-authorised persons to provide it with such documents and information as it may require appears to be designed to achieve that.
However, it is important that there should be no doubt about the matter. Merely demonstrating an absence of criminal convictions might not be sufficient to entitle an applicant to become an approved person. For example, the possession of unexplained wealth could give rise to reasonable suspicions about the integrity of an applicant. It is important that the licensing authority should be able to refuse approval in those circumstances unless it received a convincing explanation of the source of the wealth. The onus should not be on the licensing authority to prove that the unexplained wealth was ill-gotten before it could refuse to approve the applicant. The amendment is intended to put beyond doubt the fact that the onus of proof should rest with the applicant.

Simon Hughes: I strongly support the amendment, which is why I have put my name to it. I give as my reason an example from a slightly different context. When Labour came to office, the London borough of Southwark was still run by the Labour party. At that stage, the education service was not fit for purpose. The Labour Government intervened and directed the borough to contract out its education service. The borough contracted it out to an engineering firm called WS Atkins, although, to my knowledge, the firm had no previous experience of running anything to do with education. The Government said that that would be better for the borough. Arguably, the service could not have become any worse, but, in fact, it turned out to be no better, if not worse, because WS Atkins did not have the competence to run the service.
When my colleagues won a large number of seats on the council five years ago, they formed the first ever non-Labour administration. In four years the authority did so well on education that even the Government had to concede that it was fit to run the service again. The service was handed back to it and WS Atkins was shown the door. The services in the borough are now run by the borough, as they should be.
I hope that the parallel is obvious. An application was made to do a job, but no one assessed whether the applicant was fit for purpose. The amendment would require that someone who was seeking the ability to be licensed to own a business in the context of these business structures should have to give reasons why they were fit to do that job. It should not be sufficient for the authority to have to look around for reasons why a person was not fit. Such a person should argue why they have a credible reputation and financial probity and why they are suitable, and outline their experience of that part of the country and the likely issues that will come up.
It is absolutely right that the burden should shift. There would be a huge work load on the licensing authority if it had to go through the process of monitoring all the checks and balances and ensuring that it won the argument. The amendment is right for both practical reasons and reasons of principle. I hope that the Minister will be persuaded to encourage her colleagues to support it.

Bridget Prentice: In all respects, I agree absolutely with the principle behind the amendment. The hon. Gentlemen are absolutely right about the operation of the approval requirements for investors. A key touchstone of part 5 of the Bill is the principle that non-lawyers should be permitted to invest in law firms only if they can demonstrate that they meet the standards set by schedule 13 and licensing authorities. The alternative would be to require licensing authorities to assume that all prospective investors were fit and proper unless they found evidence to indicate otherwise. I do not think that that is satisfactory and I get the impression that members of the Committee agree with me because that is not a reliable enough safeguard. However, we differ about whether further provision is needed to achieve that. The proposal as drafted ensures that that is already in the Bill.
The test for approval means that when an investor wishes to acquire a restricted interest of whatever kind, the licensing authority must be satisfied that the proposed acquisition will not compromise the regulatory objectives or the ability of ABS firms and the individuals in them to comply with the regulatory arrangements. That is the first test.
In addition, the licensing authority must be satisfied that the individual or firm in question is fit and proper to hold that interest by having regard, among other things, to that person’s associates, his or her probity and financial position, and any record of previous disqualification from an ABS firm. All that must be taken into account. If those requirements are not fulfilled, the authority may refuse to approve the proposed interest, or attach conditions to it. If it is in any doubt about whether a person meets the approval requirements, it can require further information from that person.
It is for the applicant to prove to the licensing authority that all those standards are met. If the authority is not certain that that is the case, it is under no obligation whatever to approve the interest. Indeed, I would go so far as to say that the authority would not be fulfilling its statutory duty if it granted its approval in a case where a person’s fitness was in doubt.

David Burrowes: In response to the Joint Committee, the Minister indicated that the Government could deal with concerns about putting provisions on fitness to own in the Bill by way of secondary legislation, or by leaving it to the Legal Services Board. Is it possible that this could be addressed through secondary legislation?

Bridget Prentice: I am certainly happy to look at whether that should be an aspect of the secondary legislation. Paragraph 6 of the schedule probably covers everything that Opposition Members are rightly concerned about. On that basis, I ask the hon. Member for Huntingdon to withdraw the amendment, but I will take on board what hon. Members have said.

Simon Hughes: The Minister said very assertively that it was absolutely clear that the burden was on the applicant. She cited in general terms paragraph 6 of the schedule. However, my copy of paragraph 6 of the schedule does not appear to be nearly as clear as the Minister implies. Seriously, can she point to the measure—either in the clauses or the schedule—that says what she is claiming? I have read the paragraph again, and I do not see that it makes clear the point that we are trying to clarify.

Bridget Prentice: Paragraph 6(3) of the schedule says:
“In determining whether it is satisfied of the matters mentioned in sub-paragraph (1)(a) to (c), the licensing authority must in particular have regard to”
the issues that have been raised. That makes it clear that those issues have to be taken into account and that licensing authorities would be breaking their statutory duty if they did not deal with the matter properly.

Simon Hughes: I accept that, but the measure does not say who has the job of providing the information and making the case. I am sure that the Minister follows me. Paragraph 6(3) says simply that an authority has to look at those issues, but does not say that the burden is unequivocally on the applicant to satisfy the authority about those issues. That is my concern, which the hon. Member for Huntingdon might wish to pick up.

Bridget Prentice: I accept what the hon. Gentleman is saying. I will hang on to that issue and come back to him on it.

Jonathan Djanogly: I am pleased that we have had this debate. We would certainly like to emphasise that the matter is important, as the Minister accepts. The position is that the existing Bill caters adequately—

It being twenty-five minutes past Ten o’clock, The Chairmanadjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at One o’clock.